Saturday, February 18, 2012

(Reuters) - A steep decline in solar panel prices is helping solar installers attract new capital, a trend likely to trigger consolidation in the fragmented industry and drive down the cost of putting the renewable energy system on rooftops.

Panel makers such as Suntech Power Holding, SunPower Corp and Yingli Green Energy suffered from a glut of supplies that pushed prices for solar panels down 50 percent last year, sending their share prices crashing.

But those cheaper panels meant lower costs for the installers who buy them, such as SolarCity, the market leader in residential and commercial installations, which is expected to seek an initial public offering this year that could value the company at about $1.5 billion.

An IPO would make SolarCity and Real Goods Solar Inc the only two publicly traded companies solely focused on that market. Their success, and that of privately held rivals such as SunRun and Sungevity, could lead to "exponential growth" of the market, according to Neil Auerbach, founder of private equity firm Hudson Clean Energy.

"SolarCity is not going to be the only company to enjoy the benefit of that," he said. "We definitely believe that this is an attractive area. We have been looking at it. We haven't found the right horse."

Total solar installations in the United States are believed to have nearly doubled in 2011 from the previous year to between 1,500 and 2,000 megawatts of capacity. About 16 percent of that went to residential rooftops and 40 percent for installations at commercial sites, according GTM Research.

Much of solar's recent growth has been from large-scale power plant projects designed to feed the wholesale electricity market in California. But with the state's demand for large projects likely full through at least the middle of the decade, investors are looking at the spread of smaller installations, which may offer better returns.

Bank of America Merrill Lynch is backing about one-third of SolarCity's $1 billion "SolarStrong" project to put panels on military housing, and developer Borrego Solar secured $47 million this week from U.S. Bank and East West Bank for projects on corporate, educational and municipal sites in California and Massachusetts.

Companies such as Google Inc have also invested in funds that provide new financial tools for companies that have helped make the residential market one of the fastest growing segments of the industry.

Those financing tools include leasing offers for homeowners or businesses, which can install the renewable energy systems on their rooftops without spending the tens of thousands of dollars a small-scale installation can cost.